perfect competition quiz

price-taking firm's optimal output rule

a price taking firm's profit is maximized by producing the quantity of output at which the market price is equal to the marginal cost of the last unit produced

break even price

the market price at which a price-taking firm earns zero profit

shut down price

equal to the minimum average variable cost. If the market price is below this point the firm will cease production

short run individual supply curve

shows how an individual firm's profit-maximizing level of output depends on the market price, taking the fixed cost as given

when price is greater than minimum ATC

the firm is profitable

when price is equal to minimum ATC

firm breaks even

when price is less than minimum ATC

firm takes a loss and exits from the industry in the long run

when price is above minimum AVC

firm should produce in the short run

when price is equal to minimum AVC

firm is indifferent between producing or not

when price is less than minimum AVC

firm ceases production immediately

industry supply curve

shows the relationship between the price of a good and the total output of the industry as a whole

short run industry supply curve

shows how the quantity supplied by an industry depends on the market price given a fixed number of producers

short run market equilibrium

when the quantity supplied equals the quantity demanded, taking the number of producers as given

long-run market equilibrium

when the quantity supplied equals the quantity demanded, given that sufficient time has elapsed for entry into and exit from the industry to occur

long run industry supply curve

shows how the quantity supplied responds to the price once producers have had time to enter or exit the industry

constant-cost industry

is one with a horizontal (perfectly elastic) long-run supply curve

increasing cost industry

is one with an upward-sloping long-run supply curve

decreasing cost industry

is one with a downward-sloping long-run supply curve